What Would Happen If Medicare Started Negotiating Drug Prices?

A new bill in Congress would allow Medicare to negotiate with pharmaceutical companies on the price of drugs. Supporters say this would drastically lower costs.

Officials in the Medicaid program do it.

The people at the U.S. Department of Veterans Affairs do it as well.

So why don’t the folks overseeing the Medicare program negotiate with pharmaceutical companies over the price of prescription drugs?

Pharmaceutical representatives say Medicare negotiations would result in fewer choices for senior citizens who use the program to cover their drug purchases.

However, consumer advocates say Medicare negotiations would drastically reduce the price of medications.

They’d like to see the current policy change.

So, apparently, would some members of Congress.

Late last month, Democratic leaders in the House and Senate introduced the Medicare Prescription Drug Price Negotiation Act of 2017.

The bill would direct the secretary of the Department of Health and Human Services (HHS) to negotiate lower drug prices under the Medicare Part D plan.

So far, President Trump hasn’t said publicly if he supports the legislation.

In fact, White House officials didn’t respond to a Healthline request for a statement on whether the president would sign such a bill.

The silence comes despite the fact the president said shortly before his inauguration in January that pharmaceutical companies were “getting away with murder” and the government needs to negotiate with the industry.

“Before and after the election, President Trump said over and over again that drug companies were ‘getting away with murder’ and that he wanted to give the government authority to negotiate lower drug prices. That’s what this bill does,” said Rep. Elijah E. Cummings, D-Md., in a statement.

“It’s time for President Trump to follow through on his promises to the American people,” added Sen. Bernie Sanders, I-Vt. “We must join the rest of the industrialized world by implementing prescription drug policies that work for everybody, not just the CEOs of the pharmaceutical industry.”

What the bill would do

Right now, federal law prohibits the HHS secretary from negotiating directly with pharmaceutical companies over drug prices.

That is done instead by private health plans.

The prices they negotiate reach the pharmacy level.

The Part D program, which almost 40 million Medicare beneficiaries use, covers about 75 percent of drug costs in its basic program.

The program’s enrollees pick up the remaining 25 percent.

The more prescription drugs cost, the more the seniors pay.

In addition, Medicare is a large participant in the prescription drug industry.

In 2015, the health program for seniors accounted for 29 percent of all national pharmaceutical retail spending.

The bill in Congress would allow the HHS secretary to use this leverage to negotiate directly with pharmaceutical companies.

It also would establish a “fallback price” that would automatically kick in if the negotiations failed.

This price would be based on what other federal agencies and other countries pay for medications.

In addition, the legislation would restore rebates on drugs covered under Part D for low-income beneficiaries. These were eliminated when Part D was created in 2006.

Pros and cons

The pharmaceutical industry sees a number of problems with the bill.

For starters, they say the federal government wouldn’t do a better job than private plans in negotiating lower drug prices.

In a statement to Healthline, industry representatives said the current negotiation system has resulted in Medicare Part D recipients paying 35 percent less than manufacturers’ list prices for drugs.

“The so-called Medicare Drug Price Negotiation Act of 2017 isn’t about negotiation at all. Instead, it imports price controls from foreign countries while allowing the government to decide which medicines Part D plans cover,” said the statement from the Pharmaceutical Research and Manufacturers of America (PhRMA). “In reality there is already significant price negotiation that occurs within the Medicare prescription drug program. Large, powerful purchasers negotiate discounts and rebates directly with manufacturers.”

They also say the legislation could dissuade pharmaceutical companies from conducting research and could also lead to fewer medication choices for seniors.

“This newly introduced legislation undermines the competitive structure of Medicare Part D and replaces it with government imposed price controls,” the PhRMA statement added. “It could jeopardize access to critical medicines for seniors and people living with disabilities, ultimately reducing choice and restricting coverage.”

Supporters of the legislation don’t see it this way.

They point out that Medicare Part D pays 73 percent more than Medicaid and 80 percent more than the Veterans administration for brand name drugs.

Congressional Democrats estimate that Medicare negotiations would save beneficiaries at least $15 billion a year if Part D programs paid the same prices as Medicaid and the Veterans Administration do for drugs.

In a statement sent to Healthline, organization leaders say negotiations would “leverage the purchasing power of millions of Medicare beneficiaries while protecting the needs of patients to select drugs that work best for them in consultation with their doctor.”

“Medicare negotiation is at the headwaters of solutions to lower drug prices for patients,” added David Mitchell, the organization’s president, in the statement.

He told Healthline that it “doesn’t make any sense” for Medicare not to be negotiating drug prices when Medicaid and the Veterans Administration do.

He said the bill would “absolutely” reduce drug prices for Medicare recipients.

“More people will be able to afford their prescriptions. There’s no question about it,” he said. “Millions of people would be better served.”

Mosley added that these lower prices would also lower overall healthcare costs for seniors. He said older adults getting proper medications would reduce illnesses and result in less medical care, especially for lower-income beneficiaries.

However, the pharmaceutical industry feels things are currently headed in the right direction.

“As Part D enters its second decade and the marketplace evolves, America’s seniors and people living with disabilities must continue to be able to rely upon the program to provide access to the range of medicines they critically need,” said the PhRMA statement. “But this legislation would take Part D in the wrong direction, toward a system that would allow the government to decide which medicines patients can and cannot get.”

Supporters, however, say this is what the country wants.

They point to a Kaiser Health tracking poll released in April, which showed that 92 percent of Americans want the Medicare program to negotiate drug prices.

“It’s time to make a move,” said Mosley. “The best drug in the world doesn’t do any good if you can’t afford it.”